Correlation Between IShares Broad and SPDR Portfolio

Can any of the company-specific risk be diversified away by investing in both IShares Broad and SPDR Portfolio at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining IShares Broad and SPDR Portfolio into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between iShares Broad USD and SPDR Portfolio High, you can compare the effects of market volatilities on IShares Broad and SPDR Portfolio and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in IShares Broad with a short position of SPDR Portfolio. Check out your portfolio center. Please also check ongoing floating volatility patterns of IShares Broad and SPDR Portfolio.

Diversification Opportunities for IShares Broad and SPDR Portfolio

0.89

Correlation Coefficient

IShares Broad  SPDR Portfolio

Very poor diversification

The 3 months correlation between IShares and SPDR is 0.89. Overlapping area represents the amount of risk that can be diversified away by holding iShares Broad USD and SPDR Portfolio High in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on SPDR Portfolio High and IShares Broad is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on iShares Broad USD are associated (or correlated) with SPDR Portfolio. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of SPDR Portfolio High has no effect on the direction of IShares Broad i.e., IShares Broad and SPDR Portfolio go up and down completely randomly.

Pair Corralation between IShares Broad and SPDR Portfolio

Given the investment horizon of 90 days iShares Broad USD is expected to generate 0.98 times more return on investment than SPDR Portfolio. However, iShares Broad USD is 1.02 times less risky than SPDR Portfolio. It trades about -0.11 of its potential returns per unit of risk. SPDR Portfolio High is currently generating about -0.12 per unit of risk. If you would invest  3,705  in iShares Broad USD on October 3, 2024 and sell it today you would lose (27.00) from holding iShares Broad USD or give up 0.73% of portfolio value over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Strong
Accuracy	100.0%
Values	Daily Returns

iShares Broad USD  vs.  SPDR Portfolio High

iShares Broad USD

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days iShares Broad USD has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly strong technical indicators, IShares Broad is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

SPDR Portfolio High

Risk-Adjusted Performance

1 of 100

Weak

Compared to the overall equity markets, risk-adjusted returns on investments in SPDR Portfolio High are ranked lower than 1 (%) of all global equities and portfolios over the last 90 days. In spite of fairly strong technical indicators, SPDR Portfolio is not utilizing all of its potentials. The current stock price disturbance, may contribute to short-term losses for the investors.

Pair Trading with IShares Broad and SPDR Portfolio

The main advantage of trading using opposite IShares Broad and SPDR Portfolio positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if IShares Broad position performs unexpectedly, SPDR Portfolio can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in SPDR Portfolio will offset losses from the drop in SPDR Portfolio's long position.

The idea behind iShares Broad USD and SPDR Portfolio High pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Anywhere module to track or share privately all of your investments from the convenience of any device.